This Tech Stock Looks Like an Opportunity
To most people, Upland Software Inc (NASDAQ:UPLD) likely won’t sound like a familiar name, because the company doesn’t really serve the consumer market. But if you are a tech stock investor, UPLD could present a serious opportunity.
Let me explain.
Headquartered in Austin, Texas, Upland Software is in the work management software business. The company currently offers seven enterprise cloud solution suites, helping its clients win and engage customers, automate business operations, manage projects and IT costs, and share knowledge.
So because Upland Software’s services are geared toward enterprise customers, most people are not familiar with the brand.
And since the company has a market capitalization of around $1.0 billion, it’s not a big-enough tech stock to get mentioned in the financial media that often.
Still, the company has managed to build a solid presence in its industry. According to Upland’s latest investor presentation, the company has more than 9,000 customers, representing more than one million global users. (Source: “Canaccord Genuity 39th Annual Growth Conference August 2019,” Upland Software Inc, last accessed October 15, 2019.)
And while UPLD is a relatively small ticker, the company manages to serve some heavyweight players in a bunch of different industries.
Among its customers are well-known companies such as Wells Fargo & Co (NYSE:WFC), Cisco Systems, Inc. (NASDAQ:CSCO), Walt Disney Co (NYSE:DIS), Pfizer Inc. (NYSE:PFE), and Coca-Cola Co (NYSE:KO).
The most obvious reason for investors to check out UPLD stock is the company’s fast earnings growth rates. Take a look at the chart below.
Upland Software Inc Annual Revenue (Millions)
In 2016, Upland Software generated $74.8 million of revenue. In 2018, the amount grew to $149.9 million. (Source: “Upland Software Reports Fourth Quarter and Full Year 2018 Financial Results,” Upland Software Inc, March 7, 2019.)
So the company has more than doubled its top-line number in just two years.
In early October, Upland’s management raised their guidance. For full-year 2019, they expect total revenue of $217.3 to $221.3 million. (Source: “Upland Software Acquires Altify, Raises Guidance,” Upland Software Inc, October 7, 2019.)
If the company meets the midpoint of the guidance range and earns $219.3 million, it will achieve a compound annual growth rate of 43% from 2016 to 2019.
Mind you, since Upland Software’s initial public offering (IPO) in 2014, the company has met or beat its own guidance every single quarter.
One of the common concerns about fast-growing tech companies is whether they can sustain their strong top-line performance.
For instance, if a tech company reports solid revenue in one year but that number drops in the following year, the stock could take a serious beating.
The good news is, due to Upland Software’s subscription-based business model, the bulk of the company’s sales are recurring.
According to its most recent earnings report, the company generated $53.0 million in total revenue in the second quarter of 2019, a 47% increase year-over-year. (Source: “Upland Software Reports Second Quarter 2019 Financial Results,” Upland Software Inc, August 7, 2019.)
Recurring revenue, which is known as “subscription and support revenue” at Upland, came in at $48.7 million in the second quarter, also up 47% from a year ago.
In other words, recurring revenue made up almost 92% of the company’s total revenue in the most recent quarter. And the growth in Upland Software’s recurring revenue was the main driver behind its overall top-line growth.
The business is quite lucrative, with an adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) margin of 37%. (Source: “Canaccord Genuity 39th Annual Growth Conference,” Upland Software Inc, op. cit.)
And once the company scales up its business, its adjusted EBITDA margin is projected to reach 40%.
Going forward, one of the things that could fuel the company’s future growth is management’s acquisition strategy. In recent years, venture capitalists have invested tens of billions of dollars annually in the cloud segment, which has created a healthy pipeline of acquisition targets for Upland.
Looking back, we see that the company has added $105.0 million in recurring revenue through acquisitions over the last two years.
Upland Software Inc (NASDAQ:UPLD) Stock Chart
Chart courtesy of StockCharts.com
As you can see from the above price chart, Upland Software stock has already delivered some serious returns since its IPO.
And given Upland Software Inc’s growth potential, the best could yet to come for investors of this little-known tech stock.